The financial side of marriage equality

Any couple has a constitutional right to be married in any state and to receive all benefits of marriage in that state, the United States Supreme Court has held in a series of decisions. These decisions—primarily United States vs. Windsor and Obergefell vs. Hodges—effectively put financial planning for same-sex married couples on the same legal footing as financial planning for dual-sex married couples. Equality in financial treatment is mandated for any couple with a marriage license issued in any U.S. state, or in any recognized foreign jurisdiction. As a result, all married couples should have the same rights and responsibilities in state and federal tax filing, inheritance and property rights, insurance, and Social Security and retirement benefits. Here is a review that can help you understand the current circumstances for your spouse and you.

Courts are drawing the big picture

Acting under the combined weight of the high court decisions, the federal government now generally recognizes all valid marriage licenses for all federal income tax, estate tax, retirement, Social Security, and healthcare purposes. Under the same impetus, all U.S. states are required to give equal treatment to all couples with valid marriage licenses and to issue marriage licenses to all couples who request them. They are also generally required to give all marriages equal treatment under trust, estate, property, and tax rules. However, keep in mind that court decisions generally set policy but do not normally address all of the specifics of implementation. Many details may still need to be worked out. Some of the issues being raised are sparking further state and federal court procedures, so be sure to consult your legal advisors about your status under your state's laws and practices.

The income tax and married couples

At the federal level, all couples with valid marriage licenses from any jurisdiction are considered married for federal income tax purposes and are expected to file under the "married" tax status no matter where they live. Married couples can file either jointly or separately, but not singly or as heads of households.

For state income tax purposes, the principles of equal treatment apply but implementation practices may be in flux. You should consult with a qualified tax advisor to determine your local filing obligations.

A note about state tax changes: When the U.S. Internal Revenue Service officially implemented marriage equality rules starting in the 2013 tax year, it allowed couples who'd previously been denied favored tax treatment to refile certain federal returns retroactively in order to take advantage of potentially lower tax rates and greater tax deductions. State rules about amending tax returns retroactively vary widely, so you should confirm your state's practices. Also keep in mind that any change that lowers your state tax obligations retroactively would require you to amend your federal tax returns for that year, potentially increasing your federal tax obligations. You may wish to weigh any potential state tax savings against the potential cost and complexity of the required federal filings.

Social Security and retirement

Marital status plays no role in determining Social Security and "regular" Medicare tax withholding. The 0.9% Additional Medicare Tax may be withheld from any individual whose covered wages exceed $200,000 per year. However, the eventual liability for the 0.9% additional tax is determined at the time of tax filing, when the tax is applied to individuals filing singly whose income generally exceeds $200,000 and couples filing jointly whose income generally exceeds $250,000. Additional calculations may be needed to determine final tax liability for single or married taxpayers whose income is divided between wages and self-employment income.

As for benefits, Social Security provides full spousal benefits to all couples with recognized marriage licenses from any state or foreign jurisdiction. In some cases, Social Security may also award spousal benefits to couples having recognized civil unions, foreign or domestic.

Employer-sponsored retirement plans and IRAs are governed by different laws. As a result, all married couples are entitled to the same rights for joint and survivor annuities, qualified domestic relations orders, beneficiary designations, and required minimum distributions, regardless of where they, their employers, or their financial institutions are based.

Joint and community property rights, health care proxies, spousal trust privileges, powers of attorney, living wills, and other nonmonetary elements of your financial strategy rest on combinations of state and federal law. Couples should seek qualified advice to determine how their arrangements fit with current practices in the state where they live.

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